Profiting from the Tax Laws

Two recent changes in the depreciation schedule may encourage producer capital purchases.

For many fleet managers, financial considerations and not field problems dictate approval of new truck and equipment purchases. So when Congress enacts a major change in the income tax rules that's intended to encourage capital investment, it suggests that it might be easier this season to convince upper management to approve the purchase of new equipment.

In March 2002, President Bush signed into law several changes in tax law provisions for businesses that are designed to encourage capital spending and thus economic growth in response to economic uncertainty.

The first new rule that directly helps producers is called the "bonus depreciation provision." According to Todd Taggart, a partner with the Chicago-based accounting firm Grant Thornton LLP, the rule allows owners to front-load depreciation to reduce capital outlay costs in the first year in which equipment is in service. Thus, the following year's depreciation deduction amounts will be much lower.

Taggart also notes another important depreciation rule change for concrete suppliers and other construction firms. This new rule does not subject the 30% bonus depreciation to the "mid-quarter convention," an arbitrary ruling that limits the way owners begin depreciation schedules. The remaining depreciable basis may be affected, but owners will not see the value of the bonus depreciation diminished by purchasing equipment later in the year.

The article includes information about the Construction Financial Management Association (CFMA).